German bank Berenberg has initiated coverage on accesso Technology Group PLC (LON:ACSO) with a ‘buy’ rating and a price target of 2,700p, offering over 20% upside potential to the shares which are currently trading at 2,230p each.
In a note to clients, Berenberg’s analysts noted that accesso is the leading provider of virtual queuing, ticketing and point-of-sale (POS) solutions for the global leisure industry.
They pointed out that this end-to-end technology stack combined with the AIM-listed group's global footprint positions the group well in a market that is fragmented by product, geography and vertical.
The analysts said: “We believe this will allow accesso to take market share in its core theme park market, but also expand in the broader leisure industry where it has less penetration. We believe these factors will continue to drive double-digit organic revenue growth over the coming years.”
They added: “Coupled with the capacity to consolidate its fragmented industry and a scalable business model, we believe accesso can grow to multiples of its current size on a multi-year view.”
The Berenberg analysts noted that since 2012, accesso has delivered a compound average growth rate (CAGR) of 12% in organic revenue.
They believe that level of growth is sustainable as accesso’s breadth of solutions and depth of intellectual property will, in their view, allow it to: 1) continue to take share in the large US theme park market, 2) capitalise on the increasing investment in the Asian theme park market and 3) continue expanding its addressable market by entering new high-value verticals, such as live events, festivals, sport and cultural activities.
The analysts said: “Given these opportunities, and with the leisure market as a whole increasingly adopting digital supply chain and ecommerce solutions, we believe accesso will continue to deliver at least double-digit organic growth over the coming years.
As such, they forecast a 13% organic revenue CAGR for 2018-2020.
Material margin growth expected
The analysts also said they believe accesso’s software as a service (SaaS)-based revenue share model will drive material margin growth over the coming years.
They added: “This model requires accesso to bear the upfront implementation costs, reducing contract margins at the outset, but with ongoing costs largely fixed and with growing contract revenues, we would expect margins to naturally increase over time.”
The Berenberg analysts said while their base case already models EBIT margins to expand to 16%-18% in 2018-2020, they believe EBIT margins of 17%-21% in 2018-2020 and 30%-plus by 2025, are achievable.
They added that this upside scenario would increase their 2018-2020 EBIT estimates for accesso by 4%-15%, and add +700 basis points to their base-case discounted cashflow-based price target.
M&A also offers material upside
The analysts also pointed out that M&A offers material upside for the group, with accesso having spent around US$170mln on five acquisitions since 2012.
They added that with more than US$120mln of balance sheet firepower estimated over 2018-2020, they believe that accesso will likely use M&A to accelerate growth in new verticals and geographies. They said their analysis indicates that M&A could deliver 30%-plus earnings upgrades for accesso over 2018-20E20and add up to 1,100 points to their base-case DCF price target.